China suspends key exports to the automotive and military sectors

China is escalating the trade war declared by Donald Trump. Beijing has suspended exports of a wide range of critical minerals and magnets and threatens to disrupt supplies of critical components to automakers, aerospace manufacturers, semiconductor companies, and military contractors around the world.

Shipments of magnets, essential for assembling everything from cars and drones to robots and missiles, have been halted at many Chinese ports while the country's government drafts a new regulatory system. Once implemented, the new system could permanently prevent supplies from reaching certain companies, including US military contractors.

The move is part of China's retaliation for US President Donald Trump's sharply increased tariffs, which went into effect on April 2. On April 4, the Chinese government ordered export restrictions on six rare earth heavy metals, which are entirely refined in China, as well as rare earth magnets, 90% of which are produced in China.

From now on, specialty metals and magnets will only be allowed to leave China with special export licenses. However, a system for issuing licenses has not even begun to be established, causing consternation among industry executives that the process could be protracted and current supplies of key products outside of China could be depleted.

If Detroit factories, for example, run out of powerful rare-earth magnets, they wouldn't be able to assemble cars and other products with electric motors. These motors are crucial components of electric cars—and also gasoline-powered ones for critical tasks like steering—drones, robots, missiles, and spacecraft. Metals restricted by China are also used in chemicals to make jet engines, lasers, car headlights, and certain spark plugs, among others.

Companies vary widely in the size of emergency stockpiles for these contingencies, so it's difficult to predict the timing of production disruptions. But the concern in North American industry is already a reality, as Daniel Pickard, chairman of the advisory committee on critical minerals at the Office of the United States Trade Representative and the Department of Commerce, admits: "Does export controls or bans have potentially serious effects on the US? Yes," he says.

To further complicate matters, China's Commerce Ministry has banned Chinese companies from any dealings with a growing list of U.S. firms, particularly military contractors. Rare earth magnets account for a tiny portion of China's total exports to the U.S. and other countries. Thus, the disruption in shipments causes minimal economic pain in China but can have major effects for the rest of the world.

The Chinese restrictions began to take effect before the Trump administration announced late Friday that it would exempt various types of consumer electronics from China from its latest tariffs. And magnet exports remained blocked over the weekend, according to five rare earth industry executives. Like most goods from China, magnets are also subject to President Trump's latest tariffs when they arrive at U.S. ports.

Copyright The New York Times